Our
financial-statement-oriented approach to stock-market investing has been
thoroughly back-tested, real-time utilized and shown to be effective. Historical
Analysis v2.3 provides a way to select undervalued stocks, and to avoid companies that are
about to experience substantial financial stress. Review our Sample Analyses.

"[T]he penalties for financial ignorance have never been
so stiff." --- The Ascent of Money (2008)by Niall Ferguson.

"Happiness from wealth comes from gains of wealth more than it comes from
levels of wealth. While gains of wealth brings happiness, losses of wealth
brings misery." (WSJ, 8/24/09, "The Mistakes We Make --- and Why
We Make Them....")

"[R]esearch shows that ... focusing first on the positives of a
purchase or decision makes it harder to come up with the negatives—and vice
versa. ... When you're weighing an offer or decision, always start with your
list of 'cons' before considering the 'pros.' It may save you a
bundle." (WSJ, 8/12/09, "Fraud Doesn't Always Happen to Someone
Else")

"[C]ontrarian thinking is only helpful at extraordinary inflection points
in the market.... Most people think
that contrarian investing means doing the opposite of what others are
doing. But going against the crowd is a surefire way of getting trampled.
The majority of investors are usually right. True contrarians look for
points of maximum exuberance or despair, which is when the majority is generally
wrong. ... The way you can tell most investors who go against the herd is from
the hoof marks on their backs."(USA
Today, 4/16/10, "Contrarian investing doesn't mean 'always do the
opposite'")

"Warren Buffett famously said he tries to be fearful when others are greedy
and greedy when others are fearful. For some money managers, that isn't just
clever advice -- it is an entire investing strategy. The idea of embracing
out-of-favor stocks, sometimes called contrarian investing, isn't new. But the
approach requires a strong stomach in the best markets, let alone during
historic downturns." (WSJ, 5/12/09, "Contrarian Patience Pays Off --
Finally")

"[T]he bubble pops when everybody
has concluded that what has gone on with prices make sense. ...[T]here isn't
much of a step between believing that a bubble will continue and believing that
not participating in the bubble will amount to lost opportunity."
(WSJ, 5/24/05, "Betting Against the House") "A bubble
occurs when exaggerated expectations of future price increases generate unusual
demand either by people who fear being price out of the market or by investors
hoping to make a lot of money fast.A
bubble is a self-fulfilling prophecy for a while, as successive rounds of buyers
push prices higher and higher.But
the willingness to continue to pay higher and higher prices is fragile: It will
end whenever buyers perceive that prices are no longer going up.Hence, bubbles carry the seeds of their own destruction.Only time is needed for the bubbles to end."(WSJ Opinion, 8/24/04, "Mi Casa Es Su Housing Bubble")"You can never predict when a bubble will actually burst.Some of them can continue for a remarkably long time.But when they do, they almost always do so quickly and
dramatically." (WSJ, 9/14/09, "Burned by Beanie Babies and Other
Bubbles")

"Boom times are always accompanied by fraud. As the Victorian journalist
Walter Bagehot put it: 'All people are most credulous when they are most happy;
and when money has been made . . . there is a happy opportunity for ingenious
mendacity.' ... Bagehot observed, loose business practices will always prevail
during boom times. During such periods, the gatekeepers of the financial system
-- whether bankers, professional investors, accountants, rating agencies or
regulators -- should be extra vigilant. They are often just the opposite."
(WSJ, 4/17/09, "A Fortune Up in Smoke") "Investors usually
dismiss worries about aggressive accounting when they involve a fast-growing
company in an exploding sector. Instead, they should wonder why such a
company would resort to aggressive accounting in the first place."
(WSJ, 12/14/05, "Cerner's Growth Has Been Healthy, But Its Accounting Could
Be Ailing")"[W]hen a company plays sneaky with one number, there's pretty good odds
that they're being sneaky about other numbers too." (Footnoted.org,
4/24/09, "Pretty sneaky at FTI....")

"In 1970, he (Peter L. Bernstein) asked rhetorically, 'What are the
consequences if I am wrong?' and said 'no investment decision can be
rationally arrived at unless they are (based upon) the answer to this
question.' He counseled investors to take big risks with small amounts of
money rather than small risks with big amounts of money." (WSJ, 6/13/09,
"Risk-Management Pioneer and Best-Selling Author Never Stopped Insisting
Future Is Unknowable") "They didn't adequately question their own assumptions. It's an
entirely human mistake." (NYT, 1/6/10, "If Fed Missed This Bubble,
Will It See a New One?")

"[E]very investor has a
fundamental need to believe that the world is just—that good people are
ultimately rewarded, that bad people are eventually punished and that the system
isn't rigged to favor an undeserving few. This belief in a just world is partly
delusional; most of us realize that nice guys often finish last. But this
delusion makes short-term setbacks endurable. ... This time around, however,
many investors who followed the best advice were punished the worst." (WSJ,
2/6/10, "Will We Ever Again Trust Wall Street?") "[I]f we learned anything in this crisis, it is that most of the
sophisticated financial professionals in the world were no better at predicting
the market than some amateur investors. (NYT, 1/14/10, "Wall St. Ethos
Under Scrutiny at Hearing")

"To become a market-destroying 'it' group on Wall Street, you need some
arrogance, enough brains to justify making huge financial bets, utter
cluelessness about lessons from finance's booms and busts, and a sincere belief
that your unique contributions to Wall Street will mean, ahem, that this time
it really is different, so old truths can be ignored. ... Everybody knows,
though, that to really be part of Wall Street's elite, you've got to have
contempt for the little people." (Bloomberg, 2/3/10, Quants'
can't-lose ideas sink market") "When things start to go wrong, they get worse than anyone ever imagined
they could. ... Regulators should ask the dozen or so top financial services
firms ... what their most recent crop of top business school hires are working
on --- not just their general assignments but precisely what they're doing.
... [C]rises follow the talent with a lag of about three years." (Money, Greed, and Risk [1999] by Charles R. Morris)

"'What's the personality of the most successful investors?' ask William
Bernstein, a neurologist.... 'They aren't affected by other people's
feelings. In fact, the most empathetic people I know are the worst
investors.'" (WSJ, 4/3/10, "Time to Take Stock of the Recent Market
Rallies")

"What goes up often keeps rising. That's the logic at the heart of momentum
investing—a strategy that's been surging lately. ... What's more, some
investing pros say we've entered an era well suited to momentum
strategies—where one asset after another experiences a bubble that then
bursts. ... These momentum trends in markets have more to do with the
faddishness of human behavior than the fundamentals of economics and balance
sheets. In essence, investors often flock to the stocks that have been going up,
which tends to propel them further. Momentum ... traders don't analyze why ...
stocks ... are on a winning streak recently or determine whether the stocks are
expensive or cheap in theory. Momentum seekers jump on the bandwagon,
intending to jump off again before the inevitable train wreck that ends the
journey. With so many traders watching the same charts and seeing the same
signals, these trends often become ... a self-fulfilling prophecy. ... [I]nvestors
get excited because momentum beats the market on the way up—and often forget
that it gets hammered more than the market on the way down." (WSJ,
5/3/10, "Maybe the Rearview Mirror is Right")

"[A] crisis is not just a bad
situation. ... The Chinese have a similar concept: The characters for crisis
(危机

)
combine parts of those for danger
(危险

)
and opportunity
(机会

). A crisis is a point when
people have to make rapid choices under extreme pressure.... A crisis is
certainly a test of character. It can be scary. ... Students of crises are
fond of dividing them into phases. For example, Charles Kindleberger's 'Manias,
Panics, and Crashes: A History of Financial Crises' identifies five phases of a
financial crisis: an exogenous, normally positive, shock to the system; a bubble
in which people exaggerate the benefits of that shock; distress when some
investors realize that the game cannot last; the crash; and finally a
depression. ... The bubble is typically characterized by mania and denial.
Things are going well — or, at least, appear to be. Feedback loops end up
magnifying confidence. ... In finance, leverage plays a big part. ...
Manic individuals ... end up taking excessive risks.... But before that,
there is denial. People do not wish to recognize that there is a fundamental
sickness in a system, especially when they are doing so well. ... Market
participants had such a strong interest in keeping the game going that they
turned a blind eye to the unsustainable buildup of leverage. ... It is
hard to recognize a sickness, given that there is usually some ideology that
explains away the mania as a new normal. The few naysayers can be ridiculed by
those who benefit from the continuation of the status quo. ... The crash,
by contrast, is characterized by panic and scapegoating. People fear that the
system could collapse. Negative feedback loops are in operation: The loss of
confidence breeds further losses in confidence. ... Events move extremely
fast, and decisions have to be made rapidly. ... [¶] In this phase, no one
denies that there is a problem. But there is often no agreement over what has
gone wrong. Protagonists are reluctant to accept their share of the
responsibility but instead seek to blame others. Such scapegoating, though,
prevents people from reforming a system fundamentally so that similar crises do
not recur. [¶] Crises will always be a feature of life." (NYT, 10/7/12, "The Dangers and Opportunities in
a Crisis")

"Mr. (Howard M.) Schilit's firm, the Center for Financial Research and
Analysis, scours corporations' books.... He says his sleuthing cannot pinpoint
fraud. Rather, examining public
documents often turns up gimmicks or aggressive accounting aimed at camouflaging
problems. 'You never have a smoking gun,' he said. 'So you have to be careful
about alleging wrongdoing. My job is to find an early sign of
problems.'" (NYT, 1/4/04, "Once a Cassandra, Now a Sage")

"4.
Wall Street analysts don't 'do' complex. Isn't
that what securities analysts are for, you might ask? Silly reader . . .
analysis is for kids! Literally. At most large Wall Street firms, the tedious job of constructing
financial models and
answering client accounting queries is handled by the junior analyst on the team. It still shocks me today that
when meeting with a team of 'sell-side' Wall Street analysts
from a firm to discuss a particular company, the senior analyst invariably concedes the answer to a complex
financial question to a junior analyst working for him. In
a post-Eliot Spitzer world, how can this be? Simple. Senior analysts still spend
most of their time on
the road making client presentations. That is, of course, if they aren't playing golf with the CEO or organizing
the menu at the next investor conference in Las Vegas. The recent attempts by certain companies to discourage hard-hitting
independent research will only serve to maintain
the chasm between those that 'do the numbers' and those
with, hopefully, the experience to know what the numbers mean." (WSJ, 5/30/06, Commentary: "Short-Lived Lessons From an Enron
Short")

"[T]he lessons I (Herb Greenberg) have learned can be boiled down to
five that are remarkably obvious and simple but are still often ignored in the
heat of battle: Lesson No. 1: The numbers don't lie. ... That is why some ...
analysts don't like to talk to companies. They want to avoid the spin or the
face-to-face meeting that can create a psychological connection that may skew
what otherwise would be black-and-white analysis. ... Lesson No. 2: Quality,
not quantity. Ignore the 'beat the Street' headlines on earnings. It
is what goes into the earnings that counts. ...[T]he real story is often on the
balance sheet. And let's not forget the cash-flow statement. ... The more
complex and convoluted the financial statements get, especially for businesses
that aren't overly complicated, the more reason to worry. Lesson No. 3: GAAP
isn't the same as a Good Housekeeping seal. Generally Accepted Accounting
Principles ... include plenty of gray areas that give management enough rope to
hang themselves, if they so please. GAAP, after all, is subject to
interpretation, and some managers are more conservative than others. ... Lesson
No. 4: Don't confuse stocks and companies. They sometimes go in opposite
directions. Stocks sometimes really do lie. Sometimes they are pushed
artificially higher by a rotation by investors from one industry group to
another... (or) short squeezes.... [S]ometimes they lie because of momentum.
Momentum can take stocks to infinity and beyond, but ... reverse momentum ...
tends to kick in when you least expect." (WSJ,
4/26/08, "A Columnist's Parting Advice")

"Outright
fraud aside, if securities analysts rely solely on 'the number' (a.k.a.
earnings per share), and a cursory glance at the old annual report to make their
decisions, they deserve to get burned. Abraham
Briloff, professor emeritus of accounting at Baruch College
in the City University of New York and the remaining conscience of the public
accountancy world, once wisely said, 'Corporate financial statements are like
bikinis ... what they show is very interesting; but what they hide is vital.'
You would think that given the historical reputation of Wall Street as a
locker room with pinstripes, this statement alone would be enough to induce
thousands of hard-working professionals to tirelessly dig deeply into financial
statements. But over the latter part of the 20th century, the investment
management 'industry' has de-emphasized traditional securities analysis in
favor of portfolio analysis, primarily for two reasons. The first is the
hegemony of Modern Portfolio Theory (MPT), which … shifts emphasis away from
individual security analysis to the analysis of the portfolio as a whole. …
The second reason why securities analysis has been de-emphasized has been the
growth in the sheer asset size of the investment management industry. Peter
Lynch aside, very, very few people can claim competence in managing tens of
billions of dollars in portfolios composed of hundreds of stocks. It is
simply impossible for even the best and the brightest to engage in reasonably
deep fundamental analysis on a 300-stock portfolio. … What has taken
the place of detailed fundamental analysis over the years is the wholesale
adoption of earnings per share as the sole basis for securities analysis. … Intelligent and constructive securities analysis has always been the
painstaking construction of a mosaic of factors…. The apparent solution
to our seemingly collective inability to 'get it, ' is to call for more
disclosure in financial statements. What is ironic is that if many investors
have gotten themselves into a financial mess because they never bothered to
carefully read financial statements, then I can almost certainly say that
they are not going to read the colossal piles of paper being thrown at them now.
… Crooks and frauds aside, we have generally gotten enough from GAAP
disclosure to do our work. If we truly shake our heads and can't make heads or
tails of a complicated set of statements, we pass and move on." (WSJ,
8/6/02, "We Need Better Stock
Analysis, Not More Info")

"John
C. Hueston, a well-regarded — and aggressive — prosecutor from
Southern California
… advocated charging Mr. Lay with making false statements…. He
(Hueston) interviewed securities analysts, seeking to understand what Mr.
Lay had conveyed to the marketplace. He was shocked to find that most of them had
not bothered to look closely at Enron's securities filings and were taking
Enron's statements 'virtually at face value.'" (New
York Times, 6/4/06, "The Enron Case
That Almost Wasn't") "Securities Analysts'
Recommendations: Based on available
historical securities analyst information we were able to identify, as of
October 18, 2001, 15 firms rated Enron a buy—12 of the 15 considered the stock
a strong buy.Even as late as
November 8, 2001, the date of Enron's disclosure that nearly 5 years of
earnings would have to be recalculated, although most firms downgraded their
ratings, 11 of 15 continued to recommend buying the stock, 3 recommended
holding, and only 1 recommended selling. In November 2001, one firm upgraded its
recommendation from sell to hold." (United
States General Accounting Office Report to the Chairman, Committee on
Banking, Housing, and Urban Affairs, U.S.
Senate, October 2002, "Financial Statement Restatements Trends, Market
Impacts, Regulatory Responses, and Remaining Challenges")

"Mr. (Sam E.) Antar (former chief financial officer of Crazy Eddie and
former CPA, who stayed out of jail by turning on several others, including his
cousin, Eddie Antar, who was Crazy Eddie's co-founder) says investors should do
a better job 'studying' financial reports, especially the footnotes and 'risk
factor' sections. 'Notice that I used the word "'study'" and not
"'read'" since all information is not meant to be read like a novel,
but meant to be analyzed like a project.' He adds: 'Criminals are scared of
skeptics and cynics,' he says. 'We are petrified when you verify our
representations.' Did he ever have remorse? 'Never ... We simply did not care
about any one of our victims. We simply committed crime because we could. 'As
criminals we built false walls of integrity around us,' he adds. 'We walked old
ladies across the street. We built wings to hospitals. We gave huge amounts of
money to charity. We wanted you to trust us. 'Simply said ... if you want to be
an investor, you cannot accept information at face value. 'Unexamined
acceptance' is the greatest cause of investor losses.'" (WSJ, 3/3/07,
"My Lunch With 2 Fraudsters: Food for Thought for Investors")

"When Sam Antar was cooking the books for his company, he used a number of
complicated accounting tricks to dupe auditors. But some tactics were simple.
'These auditors from the Big Four accounting firms are usually single kids just
a few years out of school. What do kids in their 20s think about all the time?
Sex,' said Antar, who was at the center of a multi-million dollar fraud 20 years
ago. So Antar would pair 'cute hot female' employees with male auditors as part
of his distraction strategy. 'In effect, I was a fraudster, matchmaker and
pimp,' said Antar.... Another
tactic: Delay. 'They would come in here with maybe six weeks to go through the
books ... my goal would be to leave them 80 percent of the work for the last
week, so they're rushed to finish.' ... One of the best ways to detect fraud
in financial statements is to read only the footnotes, and compare how they have
changed over time. 'Look for subtle differences, and that is where they will
hide the fraud,' said Antar. 'That's what I did.'" (10/9/09, CNN.com,
"Financial fraud 101 -- accounting for criminals")

"[S]hort sellers are not especially sympathetic characters. After all, they
benefit from the decline in value of other people's investments. But in complex
markets, short sellers are akin to investigative journalists, looking for the
scoop of finding an overvalued company or industry. Also like journalists, short
sellers aren't always popular with corporate management or regulators. Forensic
accounting experts at hedge funds have performed the hat trick of being the
first to signal, through short selling, troubles at Tyco, Enron and now Fannie
Mae, Freddie Mac and banks." (WSJ, 10/20/08, "Don't Sell Hedge Funds
Short")

"Many investors dismissed the spectacular failures of Enron, WorldCom, HIH
and ABC Learning Centres as unforeseeable black-swan-type events. Not Jim Chanos,
founder of Kynikos Associates. He predicted their demise and profited from
them.... Chanos started Kynikos (Greek for "cynic") to profit from a
practice known as short selling, where investors profit when the stock price of
a company falls. ... You may never short a stock in your life, but if you
understand what Chanos is looking for in a good short, then you'll know what
shares to avoid. He offers three basic pointers: ... Chanos
finds the accounting for companies that serially conduct mergers to be extremely
murky. When debt is added to the mix, it often signals that all is not well –
the company may have resorted to chasing new streams of revenue just to maintain
the illusion of earnings growth. ... Some of Chanos' most profitable shorts have
been Eastman Kodak, Blockbuster and, more recently, Hewlett-Packard. These
companies appeared cheap, often selling for single-digit price-earnings ratios.
But all operated in sunset industries, victims of technological change that
drove their earnings down year after year. ... Betting on an ailing business is
like backing a bleeding horse; the pay-off is high but the odds are stacked
heavily against you. ... Sensible, profitable investing is as much about
avoiding the losers as it is betting on winners. The Jim Chanos approach
will help you avoid the losers. (1/21/13, The Sidney Morning Herald, "
Lessons from short seller Jim Chanos")

"The world is awash in credit. For the sake of investors, it had better be
awash in good credit analysis, too. ... The rise in bond issuance is a trifle
compared with what is happening in credit-derivative markets. The issuance of
credit-default swaps, which are basically insurance contracts written against
debt default, is soaring. ... Banks and other debt holders can buy
credit-default swaps to limit risk. If a borrower goes into default, debt
holders will lose money on the debt, but the default swaps they hold will rise
in value, helping to mitigate the loss. On the other side of the trade, sellers
of credit-default swaps have a nice source of income, as long as the issuer
whose debt they are backing doesn't go belly up. ... But in the process of
spending so much brain power slicing and dicing risk and passing it around, Wall
Street might miss more fundamental questions about the underlying health of
companies issuing bonds. Frank Partnoy, of the University of San Diego, and
David Skeel Jr. of the University of Pennsylvania Law School illustrated this
point in a recent paper by pointing out that the banks that financed Enron's
debt used massive amounts of credit derivatives to limit their own risk of the
company going into default. That is one reason they might have fallen asleep at
the switch." (WSJ, 11/20/06,
"Portfolio Insurance")

Were the issuers of the credit derivatives equally asleep at the wheel
after feasting on the large fees they were earning by selling the toxic waste?

"After 32 years in the industry --- 18 of those at Merrill Lynch & Co.
Inc. of New York --- and for 19 consecutive years being ranked on the
Institutional Investor All-American Research Team, Mr. (Stephen) McClellan ...
(authored) 'Full of Bull' (FT Press, 2007), half of it a critique of Wall Street
research, the rest a sometime quirky but useful guide for investors (and
advisors). ... Q: Do these problems (revealed during the research scandal) still
exist? A: Yes. Analysts are still very bad stock pickers.
Their track record is terrible. You can't rely on their buy recommendations.
Q:

Don't people understand all that after ... Spitzer uncovered the conflicts of
interest? A: ... Research is good in terms of analyzing the business, the
competition and trends, but don't pay attention to the conclusions. ... Q: You
say the first round of bad news is never the last. A: Absolutely. That's
always been true.... Companies never have one bad quarter, or one
surprise, or one earnings shortfall. Bad news feeds on itself. It
takes awhile to reverse things. Wall Street never learns that --- it's
always trying to buy the stock at the bottom." (InvestmentNews,
2/4/08, "Stephen McClellan")

"Despite an economy teetering on the brink of a recession -- if not already
in one -- analysts are still painting a rosy picture of earnings growth,
according to a study done by Penn State's Smeal College of Business. The report
questions analysts' impartiality.... 'Wall Street analysts basically do two
things: recommend stocks to buy and forecast earnings,' said J. Randall
Woolridge, professor of finance....
'A significant factor in the upward bias in long-term earnings-rate forecasts is
the reluctance of analysts to forecast' profit declines, Mr. Woolridge said. ...
The study's authors said, 'Analysts are rewarded for biased forecasts by their
employers, who want them to hype stocks so that the brokerage house can garner
trading commissions and win underwriting deals.'" (WSJ, 3/21/08,
"Study Suggests Bias in Analysts' Rosy Forecasts")

"The latest blow to the reputation of Moody's
Investors Service in structured finance is the charge that it knew of a
computer error that inflated the ratings of constant-proportion debt
obligations, or CPDOs, and didn't disclose the problem. ... The safe-sounding
ratings proved spurious.Aside from
any calculation errors, one reason was unduly rosy assumptions. ... Rating firms
like Moody's and investors are now rethinking their reliance on flawed or
insufficiently time-tested assumptions and statistical techniques that didn't
address worst-case scenarios. To those concerns, they can now add worries about
whether the plumbing of their complex models works properly. ... The main
lesson for investors comes straight off the hymn sheet of Warren Buffett ...
Don't buy what you don't understand."(WSJ, 5/22/08, "Black Boxes Skew Ratings")

A corollary might be: to understand a potential stock investment
opportunity, one must learn and perform financial statement analysis.

Historical Analysis v2.3 (HAv2.3) and
Projection v2.3 (Pv2.3) are spread-sheet-oriented tools to perform
financial statement and quality of earnings analyses and forecasts,
respectively. The information that they produce is useful to corporate Directors (and
those doing "due diligence" before accepting Directorships), commercial lenders, credit
managers, stock market investors, business school students and many others.

Historical Analysis v2.3 and Projection v2.3 organize and process large amounts of financial statement data and
produce thorough and easy to understand analyses. Manually imputing data into HAv2.3
input sheets causes one to think
about the accounting policies employed by the subject corporation and underlying
assumptions, including a careful consideration of financial statement footnotes.
Pv2.3 will help one forecast financial statements based upon user provided
assumptions and constraints. Further, Pv2.3 could permit a stock
market investor to forecast stock market entry and exit points.

The general concept
behind HAv2.3 and Pv2.3 began at the Special Credits
Department of a large West Coast commercial
bank in the late 1960s when dealing with retailing and manufacturing companies. The bank's goal was to develop computer software to help train Credit Analysts and to
avoid making problem loans. Further, the final product was to be used in
customer development. Subsequently, the tools were extensively updated and
revised with numerous added features.

HAv2.3 easily allows one to determine patterns of key operation metrics, e.g.,
rising gross-profit margins, return on investments, for selection of investment
candidates. You may click through to access our annotated HAv2.3
Analysis of PetSmart, Inc.

On the other hand, HAv2.3 generates cell
color shading to highlight financial "red
flags," e.g., questionable accounting practices, indicators of financial distress.
The "red flags" are cross-referenced to explanatory comments or
quotations from related articles appearing in the news media. You may click through to access an our annotated HAv2.3
Analysis of Twitter Home Entertainment.

HAv2.3
is capable of detecting various
financial shenanigans and financial distress years before companies enter into Bankruptcy Court
proceedings or the market price of the company's
stock plummets. We have back-tested HAv2.3's capabilities
using examples mentioned in the United
States General Accounting Office Report to the Chairman, Committee on
Banking, Housing, and Urban Affairs,
U.S. Senate, October 2002, "Financial Statement Restatements Trends, Market
Impacts, Regulatory Responses, and Remaining Challenges."
Our back-testing showed that HAv2.3 would have successfully detected impending financial
disasters.

More sophisticated users could use HAv2.3 to learn the assumptions upon which another's financial statement
projection is based. That can be accomplished by inputting
the forecasted financial statement into HAv2.3. HAv2.3 would allow the user to judge the reasonableness of the hidden assumptions
utilized in the forecast,
e.g., future sales growth, inventory turn-days.

Projection
v2.3 allows a somewhat more sophisticated user to input a corporation's latest year-end's financial data and
numerous forecasting assumptions, e.g., growth rates, various turn-days, fixed charges.
Much of that input data can be derived from the analyses produced by HAv2.3.
Pv2.3 would then forecast annual
financial statements and analyses. One could test numerous scenarios.

A
major feature of Pv2.3 is that one may pre-specific desired
constraint rations and/or amounts, e.g., Worth-to-Debt, Times-Interest-Earned, Fixed-Charge-Coverage and/or Current
ratios along with the amount of Working Capital. Using
the aforesaid assumptions and constraints, Pv2.3 would allocate the
funds needed (to balance the forecasted Balance Sheet) to Short-Term Debt,
Long-Term Debt and/or Equity. One would not be required to engage in
the seemingly endless task of manually allocating the anticipated funds needed,
checking the impact on your desired ratios and amounts, and, then re-allocating
and re-checking until you reach the multiple targets. The one step non-iterative logic in
Pv2.3 is more accurate and efficient than
an iterative approach. Pv2.3 uses cell color shading to remind that the funds-needed-allocation logic
has been invoked and highlights the numerical results.
Pv2.3 could reveal the amount, timing and nature of a company's future funding needs.

The concepts of financial statement analysis that are utilized in
Historical
Analysis v2.3 and Projection v2.3 were derived from many sources, including, books on the
subject of financial statement analysis, as follows:

When
Stocks Crash Nicely --- The Finer Art of Short Selling by Kathryn F. Stacey; and,

It's
Earnings That Count: Findings Stocks with Earnings Power for Long-Term
Profits by Hewitt Heiserman, Jr.

Other books, dealing with stock market investing, that may be of related interest, are:

Contrarian Investing by Anthony M. Gallea and
William Patalon III;

Mind Over Money by John W. Schott, M.D.;

The Psychology of Smart Investing by Ira Epstein and David
Garfield, M.D.;
and,

Fooling
Some of the People All of the Time by David Einhorn.

Additional books, dealing
with more general business/finance topics, that may be interest, are:

Ahead of the Curve --- Two Years at Harvard
Business School by Philip Delves Broughton;

Manias,
Panics, and Crashes - A History of Financial Crises by Charles P.
Kindleberger ["One problem with warnings, of course, is embodied in the
fable of the boy who cried, 'Wolf.' Economic forecasters may know the direction
of a move in business conditions, prices, and credit, but their capacity to
foretell its precise timing is limited. ... In warning the market, or in
providing it with information that it ought to have, one must first get the
bemused speculators to pay attention, and then time the announcement soon enough
to do good but late enough to be credible and heeded. Neither task is
easy."];

A
Nation of Counterfeiters by Stephen Mihm;

Billion Dollar Lessons
by Paul B. Carroll and Chunka Mui;

Money, Greed, and Risk by Charles R.
Morris; and,

Bailout
--- An Insider Account of How Washington Abandoned Main Street While Rescuing
Wall Street by Neil Barofsky;

The Payoff—Why Wall Street Always Wins
by Jeff Connaughton ["I should've known that the legal and regulatory
system meant to protect us had rotten away. ... I can't explain why President
Obama (and Vice President Biden) have failed to support stronger enforcement
efforts or financial reform.... Obama and Biden gave the problem a sideways
glance and then delegated the solutions to the same circle of Wall
Street-Washington technocrats who brought the financial disaster upon us in the
first place. ... Unfortunately for American, Obama and Biden ... were both
financially illiterate."];

Bull By The Horns---Fighting to Save Main
Street from Wall Street and Wall Street from Itself by Shelia Bair
["Financial concepts are not that difficult if you have a little time to
study them. ... Sometimes I think that people in the financial sector don't want
you to understand the issues."];

A Fighting Chance by Elizabeth
Warren ["It was the ultimate insiders' play: Trust us because we
understand it and you don't." (p. 149)];

America's First Great
Depression---Economic Crisis and Political Disorder After the Panic of 1837
by Alasdair Roberts. ["'Everyone with whom I converse, talks of 100 percent
as the lowest return on investment. No one is known ever to have lost anything
by a purchase of real estate.' --- John M. Gordon, an investor from Baltimore,
reporting on land sales in southern Michigan, 1836."];

In My Shoes by Tamara Mellon. ["The Holy Grail of private equity is an accounting metric known as EBITDA.... EBITDA multiplied by a certain number--usually around 10-12 in the fashion business--is the basis for valuation upon exit. And in private equity, it's all about the exit."
(p.103); "It appeared to me that for the right hourly rate, lawyers and
financial advisers were more than happy to sign on and ride even a dead horse
for as long as it would last." (p. 203); "These were midlevel
private-equity people who hadn't learned that you can't just screw everyone. All
they cared about was their own monthly fees, their 20 percent on exit, and their
favorable tax rates. They were like feedlot farmers who don't care about the
cruel and squalid conditions or the hormones and chemicals flooding into their
animals. Their only concern is that their livestock put on sufficient weight to
bring top dollar when slaughtered." (p. 248).]

"Stock analysts have long been criticized for issuing very few 'sell'
recommendations on stocks they cover. If you want to know why they still often
are reluctant to be publicly negative, spend a few minutes with Eric Wold,
analyst at the San Francisco
investment-banking boutique Merriman Curhan Ford & Co. His reward for
slapping a sell rating on Nautilus
Inc.? He says the company won't return his phone calls anymore. ... Their lack
of response, he says, appears directly related to the increasingly critical
nature of his reports, which culminated in June 2006 with his downgrade to a
sell 'on heightened concerns' over a variety of issues. This was one month after
Mr. Wold wrote that he was 'unconvinced' the company, which had a series of
missteps and disappointments, 'has turned the corner.' ... [H]e realized
the new strategy was 'cannibalizing existing sales and shifting sales from
high-margin channels to low-margin channels.' ... He red-flagged such things as
undershooting on earnings forecasts, increased competition.... Ron Arp,
Nautilus's senior vice president of corporate communications, says ... (that) it
is 'not true' that the company won't talk to Mr. Wold. ... 'That
is hilarious,' Mr. Wold responds. ... In looking back, the lack of access forced Mr. Wold to rely only on
publicly disclosed numbers and outside resources for his analysis, and in doing
so he got it right.Maybe that is the moral of this story: Let the numbers do
the talking, not the company."(WSJ, 7/14/07, "After an Analyst's 'Sell' Call, Nautilus Flexes Its
Muscles")

"Perhaps all it takes to keep an analyst from downgrading a company's stock
is a couple of favors from the chief executive officer. That, at least, is the
conclusion of a new study by two business-school professors. James
Westphal of the
University
of
Michigan
's
Stephen
M.
Ross
School
of Business and Michael Clement of the McCombs School of Business at the University
of
Texas
found that nearly two-thirds of securities analysts receive advice,
introductions to other high-powered executives, or other favors from top
managers at the firms they cover. ...
[A]s a company's reported earnings slipped, executives became more likely to do
favors for analysts covering it. ... Analysts are only half as likely to
downgrade a company's stock after it announced earnings below the consensus
forecast if one of the firm's executives does two or more favors for the stock
picker.The study also found that
executives tend to reach out to the analysts with the most influence. ... The
favors executives rendered most frequently included connecting an analyst with a
high-ranking official at another company (comprising 28% of favors in surveys of
analysts), providing career advice (20%), offering to meet with the analyst's
clients (13%), and passing along information on industry trends (10%). ...
Professionally, the analysts may stand to gain considerably more from their
access to executives at the firms they cover than they might lose by failing to
downgrade a stock that truly deserves it. ... So,
who loses? Westphal and Clement argue that executives' favor-wielding risks
undermining the objectivity of analysts' reports. For big institutional
investors, who probably have their own stable of analysts, other views may not
be tough to come by. But individual investors should know that analysts and
executives are trading favors...." (BusinessWeek, 7/27/07, "Analysts
and CEOs: A Love Story?")

"Nortel Networks Corp. … had a profit of $40 million, its first positive
quarterly result in four years. … But
the profits turned out to be illusory. … [T]he company inaccurately employed
an accounting maneuver to make it look profitable, when in fact it wasn't. ….
[T]he alleged manipulation centered on the misuse of an accounting entry known
as accrued liabilities. Accrued liabilities derive from the charges companies
often take for matters such as merger costs, write-downs and, in Nortel's case,
contractual liabilities.

…
Some former employees and critics say board members, many of whom were
former ambassadors and Canadian corporate leaders, should have spotted the
accounting problems earlier." (WSJ,
7/2/04, "Reversing the Charges: Nortel Board Finds Accounting Tricks Behind '03
Profits; A Telecom Star Manipulated Its Reserves, Hid Losses, An Investigation
Discovers; How to Empty the Cookie Jar")

"If there ever were a bell-ringer that the market's recent giddiness
appeared likely to end, it was Prudential Equity Group analyst Howard Penney's
recommendation of Krispy Kreme Doughnuts Inc. after the market's close on
Oct. 26. … Here was a company that hadn't filed quarterly reports with the
Securities and Exchange Commission for more than two years; its most recently
filed annual report -- in April -- was more than a year out of date. … Mr.
Penney not only initiated coverage on the stock with the equivalent of a buy,
but gave it a target of nearly double its price." (WSJ, 11/4/06,
"What's Behind Sugary Report On Krispy Kreme? ")

"Mr. Van (S. Bradley) Cleve (a lawyer for the 34 biggest industrial
customers of Portland General Electric) sought a subpoena for all the
correspondence between Standard & Poor’s and the utility for the previous
21 months. Those newly disclosed documents open a rare window into the internal
workings of the corporate credit rating business. As such, the documents
raise questions about the independence and integrity of the rating services,
whose reports are relied upon by millions of investors in choosing stocks and
bonds. The documents show that
Standard & Poor's solicited comment from the utility on a draft report and
then made at least 48 changes that the utility sought before releasing its
report on Sept. 25. Those changes included ... (a) crucial phrase
supporting Portland G.E.'s request to shift all fuel-cost risks off its
shareholders and onto customers. The utility then used the report as independent
corroboration of its request to raise rates. ... The biggest credit rating
services — S.& P. and Moody’s Investors Service as well as Fitch Ratings
— have been roundly criticized since they failed to publicly report the
declining fortunes of Enron and WorldCom until it was too late. Congress,
European securities regulators, investor advocates and even some rival credit
ratings agencies questioned the independence and integrity of the credit rating
system, in part because since the early 1970s the services have been paid by the
very companies whose creditworthiness they evaluate. ...
Congress passed laws in 2002, 2005 and in October directing the Securities and
Exchange Commission to get tough on the ratings agencies. An S.E.C. spokesman,
John Heine, said the commission was still studying the issues and had not
released new rules yet. The Oregon
documents suggest that little has changed since the collapse of Enron five
years ago. ... In the Oregon
case ... the changes made by S.& P. cast increased doubt on the financial
strength of Portland G.E., bolstering its case to raise rates, increase its
profit margin and shift all fuel-price risks onto customers. ... The utility
cited the report as independent corroboration of its request to raise rates by 9
percent and to shift all fuel-cost risks off shareholders. ... Normally
investors who rely on these reports never get any hint of what revisions are
sought by companies whose finances are being evaluated. ... In documents released last week, the
staff of the Oregon Public Utility Commission determined that S.& P.'s Sept.
25 report was so compromised that 'it is impossible to conclude that S.& P.
conducted a timely independent inquiry.' ... Both Moody’s Investor Services
and Fitch Ratings, said they, like S.& P., typically show advance copies of
reports to client companies to check facts." (NYT, 12/12/06,
"Objectivity of a Rating Questioned")

"Paid-for research firms typically follow tiny, little-known companies the
big brokerage firms ignore. Without them, there likely would be no research
reports at all on these companies. Critics of paid-for research say it is less
reliable, because an analyst could be influenced to be more bullish or bearish
in his or her report, depending on who pays for it. Others note that paid-for
research isn't that different from companies paying credit-rating firms that
assess their debt. ... The full
reports include disclosure information about potential conflicts of interest.
... Those who can access the full
reports and read the fine-print disclosures will see that....Some
say the paid-for research isn't that different from other reports. 'Really, on a
very basic level, what research isn't paid for?' says Todd Essary, chief
executive of Investrend Research, member of a consortium of about 15 paid-for
research firms...." (WSJ, 12/13/06, "In Quiet Niche, Paid-For Stock
Research Persists")

"Nobody can see the future; yet every quarter it's the same old song and
dance: Will they or won't they? (Beat the estimates, that is.)Estimates by analysts, of course, aren't necessarily the same as guidance
provided by a company. But guidance creates a target analysts can work from.
Sometimes companies beat the consensus estimate by low-balling guidance. Other
times they beat numbers that everybody conveniently forgets had been revised
downward. And sometimes, as if miraculously clairvoyant, they hit the number
they forecast quarters or even years earlier on the nose.Part of running a business includes making internal forecasts. ... Some
companies are even modifying their annual guidance by adopting rolling guidance,
which involves setting an annual target that's reaffirmed or revised quarterly.
... 'I don't deny there's a game going on with analyst forecasts and with
guidance,' says one of the study's (a new academic paper on the subject, titled,
'To Guide or Not to Guide') authors, Baruch Lev of New York
University's Stern School of Business. But he adds he believes that guidance is important.
Without it, he says, analysts will continue to forecast. 'All you'll have is
forecasts,' he says, 'some of them completely wide. Guidance is a way for
managers to induce some reason into them.' That's
assuming management has a better handle on the numbers than the analysts. Given
the amount of guidance that is often revised downward -- three for every two
revised upward in the past four weeks alone, according to Zack's Investment
Research -- it's not altogether clear they do." (WSJ, 2/3/07, "If
Earnings Guidance Lacks Clear Direction, Why Bother?")

"Jerry W. Levin says he welcomed help from Sunbeam Corp. directors when he
was named CEO of the consumer-products maker in 1998 after directors fired
Albert J. Dunlap amid accounting problems. Mr. Levin previously had run Coleman
Co., before Sunbeam acquired it. Directors met almost every day by phone
for months, recalls Mr. (Charles) Elson, the Delaware
governance expert who was a Sunbeam director at the time. The board counseled
Mr. Levin on such subjects as strategic shifts and executive recruitment. 'I was
plenty happy to have their support,' says Mr. Levin.But Mr. Levin says he was surprised that the board knew so little about
the extent of Sunbeam's accounting problems, as his team uncovered them.
'"They said, 'It's unimaginable that such massive fraud could have taken
place under our noses,'" Mr. Levin recalls. Mr. Elson replies, 'The
board had been seriously misled by prior management.' Sunbeam ultimately
restated 18 months of earnings and filed for bankruptcy protection." (WSJ,
3/19/07, "More Outside Directors Taking Lead in Crises")

"[T]he vast majority of analyst recommendations remain bullish. ... [I]ndividuals
and institutions alike want to see stocks go up, so they prefer bullish analysts
over bearish ones. But another, greater source of pressure are the companies the
analysts cover. Managements that are showered in stock options have their
personal wealth directly tied to a rising stock price, so they are often
infuriated when an analyst puts out a critical report or downgrades a rating to
a sell. And they retaliate. They refuse to allow the negative analyst to ask
questions on conference calls. They somehow 'forget' to include him in e-mail
messages that are sent to other analysts. They decline to attend that analyst's
conferences. They complain to his boss, who then inquires as to why the analyst
has to be so darn negative all the time. Many companies still use investment
banking business as a way to reward the firms that employ analysts they like and
punish the ones with analysts they don't like.... And sometimes companies
sue.... [I]t works. ... These are bullish times in the stock market, so it is
easy to forget how important it is to have skeptical -- and even negative
--voices to counterbalance all the happy talk surrounding stocks. Even when the
skeptics are wrong, they make the market healthier because they offer a point of
view that people need to hear." (NYT, 5/12/07, "Making
Sure The Negative Can Be Heard")

"[C]orporate earnings reports have outstripped analysts' expectations,
contributing in no small part to the fizzy mood on Wall Street.But
here's a sobering thought: those expectations were way too low in the first
place. ... But why were analysts so
far off the mark? Largely because of the so-called guidance provided by company
after company, setting investors up for a pleasant surprise when earnings were
announced." (NYT, 5/13/07, "Surprised? Maybe You Shouldn't Be")

"Journalist Michelle Leder learned the hard way about not reading
the footnotes. ... Afterward, she decided to go back to see what she might have
found had she looked more closely at the footnotes in the company's Securities
and Exchange Commission filings. There was plenty, says Ms. Leder, who used the
experience as the launching pad for her Web site, Footnoted.org, which tries to
ferret out facts that otherwise might go unnoticed. ... [S]ophisticated
investors will dig into the footnotes to determine if everything is as the
company said it was. ... In 10-Ks, Bob Olstein of Olstein Funds ... starts with
a review of the note on income taxes. 'What I want to see,' Mr. Olstein says,
'is a reconciliation of the income the company is reporting to shareholders and
the income being reported to the [Internal Revenue Service].' A big difference
between the two can be a red flag that requires further research, which he says
was the case with Sunbeam, the appliance maker that got caught up in an
accounting scandal in the late 1990s. ... Mr.
Olstein ... also look(s) at the
footnotes on raw materials, work in progress and finished goods. 'A huge build
in raw materials and work in progress relative to finished goods can mean orders
are picking up,' Mr. Olstein says. 'The reverse can be if finished goods are
building and raw materials are not.'" (WSJ,
6/2/07, "An Eye-Poke to Investors Who Ignore the Small
Print")

"Nobody cares much about accounting scandals anymore. Proof is the stock
market's reaction (or lack, thereof) to the continuing saga surrounding
'accounting irregularities' at International
Rectifier, a Wall Street favorite and stalwart among technology
companies. ... ['H]ere's a company with a market value of nearly $3 billion,
revenue of more than $1 billion and earnings exceeding $100 million -- whose
disclosure of 'accounting irregularities' caused the equivalent of a yawn. The
meek reaction, oddly enough, is understandable: The original announcement
skirted details, saying the irregularities were limited to a foreign subsidiary
and 'include, among other things, premature revenue recognition of product
sales.'The bad stuff appeared to
occur in the preceding six quarters and the fiscal year that ended June 30,
2006. Pretty humdrum, if you didn't know better. Analyst Todd Cooper of Stephens
& Co. told clients ... the most likely outcome 'could be that revenue could
move from one quarter to the next but that overall revenue would not change.' He
added that 'issues with shipments around the end of a quarter and when those
shipments should be recognized as revenue are probably at the root of this
issue.' ... [F]ilings with the Securities and Exchange Commission (reported) ...
the company's investigation found that 'among other things' the foreign
subsidiary would occasionally enter 'unsubstantiated orders' into the system.
... 'The practice included routing certain product shipments to warehouses not
on the company's logistical system.' ...
[T]he market's indifference to possible fraud, no matter the size, is astounding
-- especially since, at times, aggressive behavior reflects a company's culture.
... Over the past six years, the
skepticism analysts and portfolio managers built up after Enron has evaporated
and therefore, they simply don't care about accounting scandals. Not yet, at
least."(WSJ, 7/7/07,
"Accounting Scandals: Not a Problem?")

"When it comes to government investigations, 'investors are dangerously
complacent,' says John Gavin,
president of Disclosure Insight, a
research firm that analyzes SEC filings with a focus on uncovering
investigations before they are publicly disclosed. Too often, he says, they are
simply 'too generous' in their assessment of regulatory risk. He says that is
because management often gives little in the way of facts while analysts don't
probe 'because they're afraid' of getting frozen out by the company. ... [M]any
companies avoid disclosing investigations until long after they are under way.
... The reality: There isn't a rule that says a company must disclose
investigations until they are deemed, by the company, as material. ... Mr. Gavin
adds, 'Dell sat on its revenue-recognition investigation for a year and
then disclosed it.' ... [R]estatements, which would appear to put overly
aggressive accounting in the past, don't necessarily establish a clean slate in
the eyes of investors. According to a Treasury Department restatements report
this past week by University of Kansas associate professor of accounting Susan
Scholz, while there are some indications of apathy by investors, 'returns
are statistically negative for restatements involving fraud' in every year but
2004. Restatements, alone, aren't as ominous for investors as outside
investigations. From 'the first revelation of misconduct' until an investigation
is resolved, stocks of target companies tend to fall by an average of 40%, says Jonathan
Karpoff, a finance professor at the University of Washington, who
co-authored a study on the topic. ... Lenders, for example, might be reluctant
to lend to companies that have been tagged as having inadequate internal
controls." (WSJ, 4/11/08, "Why Do Investors Ignore Inquiries?")

"The public stock markets are in the throes of one of the biggest and most
egregious financial scandals in modern history.... This unprecedented scandal is
documented in succinct but gory detail by Mr. (Louis) Lowenstein
in The Investor's
Dilemma: How Mutual Funds Are Betraying Your Trust and What to Do About It.
Mr. Lowenstein is a lawyer, a former business executive and a professor emeritus
of finance and law at Columbia
Law
School. ... [H]e is a proud disciple of the 'value investing' principles outlined by Columbia
professors Benjamin Graham and David L. Dodd in 1934....
[A]s summarized by Mr. Lowenstein: 'There is a profound conflict of interest
built into the industry’s structure, one that grows out of the fact that the
management companies are independently owned, separate from the funds
themselves, and managers profit by maximizing the funds under management because
their fees are based on assets, not performance.' ... [T]he performance of the
vast majority of mutual funds ranges from dismal to atrocious, especially in
comparison to the highly profitable performance of the management companies that
own them. ... Mr. Lowenstein cites several structural reasons for the failure of
mutual funds to serve the best interests of their investors. ...
Mr. Lowenstein balances his critique of rapacious mutual funds with an analysis
of two relatively new funds ... (with) business models (that) mirror the Graham-Dodd philosophy of focusing on a
few carefully selected stocks rather than diversifying in the name of safety,
which is typically a euphemism for lazy research, Mr. Lowenstein says." (NYT, 4/20/08, "Some Mutual Fund Numbers Look Great, but for
Whom?")

"Most of David Einhorn's ideas work out brilliantly. He is a
39-year-old hedge-fund manager in Manhattan
who oversees $6 billion. Bull markets? Bear markets? It hardly matters. His
stock portfolio has averaged 25% annual returns since 1996, when he opened Greenlight
Capital. Now Mr. Einhorn has written a book. ... In 'Fooling Some of the
People All of the Time' .... The story starts in 2002, with Mr. Einhorn rightly
proud of his ability to spot companies with shoddy accounting practices. ...
Convinced that he has found another juicy target, he zeroes in on Allied
Capital, a business-financing company that seems to dawdle when it comes to
marking down the value of its troubled loans. ... Allied eventually did take big
write-downs.... He grew so irate about the company's accounting that he alerted
the Securities and Exchange Commission. The SEC did little with his complaint;
in fact, it investigated him instead for spreading negative views about
Allied. ... An SEC lawyer who quizzed him aggressively about his short-selling
methods later went into private practice and registered as a lobbyist for
Allied. ... The book also shows why good accounting really matters. It is easy
to mock finicky people with green eyeshades who worry about financial footnotes.
But reliable numbers are essential if capital is to be allocated properly in our
economy. ... Mr. Einhorn is a hard-liner, wanting strict accounting standards
that punish missteps quickly. Allied Capital, to judge by his version of events,
liked living in a more lenient world, where there was plenty of time to patch up
problems quietly. Regulators were comfortable with an easy-credit philosophy,
too, to a degree that startled Mr. Einhorn. In the current financial shakeout,
people like Mr. Einhorn are entitled to say: 'I told you so.'"(WSJ, Bookshelf, 4/23/08,
"The Money Kept Vanishing")

"Sometimes Wall Street seems a bit like the make-believe Lake
Wobegon: Most stocks are above average, and it is always a good time to buy. ...
But Merrill Lynch, the nation's largest brokerage firm, unveiled a new system on
Tuesday for rating stocks that suggests Wall Street finally may be mustering up
its courage to say 'sell' more often. Starting in June, Merrill will require
that its analysts assign 'underperform' ratings to 1 out of every 5 stocks they
cover. About 12 percent fall into that category now. ... [S]ome in the financial
industry say it may be too late for research departments at Merrill or other
investment banks to reclaim the credibility and prestige they lost after the
technology stock bust. Hedge funds, which account for up to 75 percent of
trading on some markets, conduct much of their own research and often pay twice
the going rate on the Street for analysts. Many banks, by contrast, have cut
research budgets. ... Today, the company has 750 analysts covering 3,600 stocks,
compared with 900 analysts covering 3,500 companies in 1999. Some analysts say
the market does not value investment research about stocks as much as it used to
because hedge funds and other investors are more focused on short-term results
than they used to be. ... Yet some investors say they still use Wall Street
research, just not in a way that would hearten big investment banks. Mr. Melcher
of Balestra Capital said he found the research to be a guide to the prevailing
view about a company or industry. Often, he takes Wall Street’s ratings as a
contrarian indicator and does the opposite of what the analysts are
recommending. In other words, when all the analysts say 'buy,' it’s often a
good time to sell. 'When we see
all the analysts go one way, we take a very serious look at going the other
way,' he said. 'And it has paid off over the years.'" (NYT,
5/15/08, "Merrill Tries to Temper the Pollyannas in Its Ranks")

"When it comes to one-day losses, it doesn't get much uglier than shares of
NexCen Brands. The stock
plunged 77% in trading Monday.... It raised doubts about its own survival,
questioning its 'ability to continue as a going concern.' ... NexCen shares have
been steadily deteriorating over the past year and a half. Analysts at Brean
Murray Carret & Co., who steadfastly held a 'buy' rating on the company
since April 2007, downgraded NexCen to 'hold' Monday, saying they were 'tired of
making excuses for NexCen and touting the strength of the business model while
virtually continual top- and bottom-line misses and, now, poor negotiating of
the debt covenants, show a lack of controls.' ... NexCen was founded in 2006 by
Bob D'Loren, who merged his investment bank, UCC Capital Corp., with a defunct
wireless provider to reap a tax benefit. He has since bought a number of
franchises looking for turnaround potential.... The bizarre part of this is that
all four of the research analysts covering NexCen had moldering 'buy' ratings on
the company. During Brean Murray's 'buy' rating, the shares fell 80% -- and that
isn't including Monday's trading. Two
other analysts -- at Sidoti & Co. and Lazard Capital Markets -- held 'buy'
ratings since August and October, respectively, and in that time, the shares are
down more than 60% (again, not including the decline Monday). Sidoti dropped
coverage of the stock Monday to 'focus on stocks with greater market
capitalization.' ... C.L. King, the fourth firm covering the company, has an
'accumulate' rating, its second highest, which projects a 10% return or more
over a 12-month period. Since this upgrade from 'neutral' in September, the
stock is down 65%." (WSJ, 5/20/08, "Staunch NexCen Fans Head for
Exit")A "buy" rating
is not what it used to be --- or is it?

"A group of Archway
& Mother's Cookie Co. creditors has sued Catterton Partners, charging
the private-equity firm with participating in an accounting fraud at the
collapsed cookie maker. Archway closed its doors in October. ... It filed for
bankruptcy protection from its creditors and laid off all 673 full-time
employees. The lawsuit, filed in U.S. Bankruptcy Court in Delaware, alleges Catterton turned a blind eye to a widespread accounting fraud at
Archway that was neither 'particularly sophisticated or ingenious.' Company
executives created phony sales and inflated inventory, the complaint says. These
financial maneuvers enabled Archway to increase the amount of credit available
under its lending facility with Wachovia
Corp. ... 'The accounting fraud was the most convenient way of continuing to
receive senior financing and trade credit to keep the business afloat,' say the
Archway creditors' committee in the lawsuit."(WSJ, 1/24/09, "Creditors Sue Archway Owner")One is left to wonder whether Wachovia bothered to perform a financial
statement analysis.There are
methods to detect "phony sales and inflated inventory."

"[J].P. Morgan Chase analyst Paul
Coster, who Wednesday published a bullish report about software company Sonic
Solutions. His 'overweight' recommendation was based on a stock-price target
of $13, 55% higher than Tuesday's closing price.One
problem: His price target was based on a share-count projection for Sonic that
was far too low. ... Using a cash-flow analysis, Mr. Coster estimated Sonic was
worth $378 million, which he divided by 29.1 million shares to arrive at a $13
target price. But in a note on Thursday, he revised the projected share count up
to 50.4 million shares. With that higher count, the per-share value should have
fallen to $7.50—lower than where the stock traded before the note. But Mr.
Coster's per-share valuation didn't fall, primarily because he simultaneously
raised his revenue projections for fiscal years 2012 through 2017, thereby
lifting Sonic's estimated value more than 70% to $648 million. The new share
count and company value combined to produce almost exactly the same per-share
value for Sonic, allowing Mr. Coster to maintain his $13 price target. ... [M]r.
Coster suggested a good share of the extra value in Sonic was going to come from
a product called RoxioNow. But the question needs to be asked: Did Mr. Coster
raise his long-term revenue projections to avoid an embarrassing cut to his
price target? ... Investors can draw their own conclusions." (WSJ, 6/12/10,
"Red Flag for Bull Case on Sonic")Houston, we have another credibility gap roaming Wall Street.If you can't trust a securities analyst, who can you trust?

The stock market investing approach outlined here is based upon the underlying
assumption that there is a positive correlation between the quality of a
company's financial statements and the eventual market performance of the company's
publicly traded securities. However, that may not always be true. You be the judge.

"It all starts with a well-defined process that is executed with a high degree
of discipline. ... There are a lot of smart people in the investment business,
but not very many of them are consistently successful. ...We think the reason is
that not many of them have a truly well-defined process and are truly
disciplined in executing it." (WSJ, 11/7/05, "He Recruits Managers with
Passion and Focus for Stocking-Picking Teams") "In this world, data can be used to make sense of
mind-bogglingly complex situations. Data can help compensate for our
overconfidence in our own intuitions and can help reduce the extent to which our
desires distort our perceptions." (2/18/13, NYT,
"What Data Can't Do")

"Call it the
consumer's Catch 22: Buyers love bargains, but when they finally arrive—thanks to a financial crisis—many feel too cash-strapped to take advantage
of them. ... Valuation — always a tricky affair — becomes even more
challenging in turbulent times.
For example, traditional measures based on
earnings multiples are less meaningful when profits are erratic, or
nonexistent." (NYT, 5/22/09, "The Art of Buying in Bearish Times")
As John
Maynard Keynes famously put it: "The market can stay irrational longer than
you can stay solvent." "The
technical term for it is 'negative feedback loop.' The rest of us just call it a
panic. How else to explain yet another plunge in the stock market Tuesday that
sent the Standard & Poor's 500-stock index to its lowest level in five
years — particularly in the absence of another nasty surprise? ... Anybody
searching for cause-and-effect logic in the daily gyrations of the market will
be disappointed — even if the overarching problem of a crisis of confidence in
the global economy is now becoming clear. Instead, the market has become a case
study in the psychology of crowds, many experts say. In normal times, it runs on
a healthy mix of fear and greed. But fear now seems to rule, with investors
often exhibiting a Wall Street version of the fight-or-flight mechanism — they
are selling first, and asking questions later. ... To some, signs of
capitulation can be read as an indicator that the bottom may be near. Indeed,
Sam Stovall, chief investment strategist at Standard & Poor's Equity
Research, is among those who say the market may be close to a bottom. ...
The opposite of capitulation, of course, is investing at the height of a bubble.
... At this point, any spreadsheet analysis of underlying and intrinsic
values of stocks becomes meaningless, and concern for preserving wealth
overrides the desire to grow it — what some may call greed." (NYT,
10/8/08, "Forget Logic; Fear Appears to Have Edge")"You
could've been highly leveraged.... Leverage
may turbo-charge results on the way up, but it's crushing on the way down."
(WSJ, 11/25/08, "A Reason to Be Thankful: It Could Have Been Worse")

"[W]hen the fear system of the brain is active, exploratory activity and
risk-taking are turned off. The first order of business, then, is to
neutralize that system. This means not being a fearmonger. It means
avoiding people who are overly pessimistic about the economy. It means
tuning out media that fan emotional flames. ... [I]t means closing the Web
page with the market ticker. It does mean being prepared, but not being a
hypervigilant, everyone-in-the-bunker type." (NYT, 12/7/08, "In Hard
Times, Fear Can Impair Decision-Making") "[M]ost retail investors rush
into the market at the top and bail out at the bottom." (Registered
Representative, 9/09, "The 0% Return") "Experts say amateur
investors tend to make two basic mistakes: they are swayed by emotion, and
assume that recent performance will predict the future. ... 'Often, the best
investments for the future are those that have been performing the worst,' Mr.
(Stephen) Utkus (head of the Center for Retirement Research at Vanguard)
said. Unfortunately, taking advantage of underpricing implies a contrarian
style of investing that 'most of us aren't emotionally equipped to handle,' he
said." (NYT, 9/22/09, "The Forest, the Trees and Your Portfolio")

"To
be a value investor, it isn't enough to buy cheap stocks or the funds that own
them. You have to stick around until the market recognizes their worth. Mr.
[Jean-Marie] Eveillard, now 73 years old ... is prepared to 'suffer' until the
market proves him right." (WSJ, 2/16/13, "Value Stocks Are Hot---But
Most Investors Will Burn Out")

It may not be prudent to purchase securities of well-known companies based
solely upon the fact that the company's stock price declined 30% to 50% from its prior
52-week high. A prudent investor might prove to be wiser by avoiding that which first might
appear to be a tempting investment opportunity. “Value investors like Ms. (Kim) Forrest hunt
for stocks of companies that are underappreciated and undervalued. It is an
approach championed by Warren Buffett and many other bargain hunters. But a low
share price isn't the same thing as a good value, particularly if the weakness
reflects some fundamental problem facing a company or its industry. Investors
who conflate the two may be succumbing to a common desire to buy cheaper stocks
in order to avoid overpaying, says Meir Statman, a finance professor at Santa
Clara University in California. It is similar to the impulse that compels
investors to cling to stocks they already own that have declined in price, he
says. Research suggests that is a
bad strategy, Mr. Statman says, because stocks that have gone down over the
past six months to a year are more likely to keep going down for roughly the
same amount of time. ‘Usually, losers continue to lose,’ he adds. ...
‘Don't expect these things to shoot up in 2013,’ says Fort Pitt Capital's
Ms. Forrest. She thinks it could take three to five years for some laggards to
rebound. That could pay off for investors who have lots of patience. But many
investors are more like ‘hyperactive kindergartners playing musical
chairs,’ says Sam Stovall, chief equity strategist at S&P Capital IQ.
‘They don't have the patience.’ ... ‘A lot of investors have been waiting
for a strong correction,’ Mr. (Sam) Stovall says. If that happens, the stocks
that have climbed the most this year could skid, he says—but the same stocks
are the most likely to bounce back strongly if investors see the slide as a
buying opportunity. Rather than buying up laggards, Mr. Stovall says, the
appropriate response to this year's rally may be to ‘let your winners run and
cut your losers short.’” (5/25/13, WSJ, “Beware of 'Bargain' Stocks---Why
a Low Share Price Alone Doesn't Make for a Good Value”)

During those times when the
stock market is rational, investors may use
stock market screens, available through
securities brokerage firms where they maintain accounts, to locate potential investment
opportunities. They
may employ various search criteria, e.g., EV/EBITDA, PEG, ROIC, Price/Earnings,
Price/Sales, Price/Operating-Cash-Flow and/or Price/Book Value ratios. There
will be few, if any, candidates near market tops---of course, depending how
conservative the criteria. Using
HAv2.3, one can verify that the
favorable search results were not
produced by a company's manipulative accounting and/or unsound management
practices. On the other hand, a short-seller might view companies with manipulative
accounting and/or unsound management practices, where its stock is reaching new
highs, as an investment opportunity.

After assuring oneself of the quality of the company, e.g., Predictor of Financial Distress showing that bankruptcy is
unlikely, a
stock purchaser might feel very comfortable increasing his/her investment position at specified levels
of decline. An "early bird" investor, who
"averages-down," could ultimately profit more than one who is able to
pick the stock price bottom with his/her initial purchase. This approach takes much
emotional stamina and available reserve funds. There are risks. "The 'strong hands' have what it takes to
survive.... Not only are they emotionally strong enough to avoid selling into a
panic, but they also have deep-enough pockets to avoid doing so for financial
reasons. In fact, the 'strong hands' can actually profit by buying at cheap
prices near the bottom of a market." (NYT, 8/9/09, "Hold or Fold, but
Don’t Waver")"Value investors are known for buying low
and selling high, but some big-name mutual-fund managers who thought they bought
low are now selling far lower and are posting big losses.... [V]alue managers
are unloading some traditional holdings that have disappointed. ... Fund
managers try to look at the bright side, telling shareholders the losses will
help cut their taxes." (WSJ, 8/30/08, "Value Investors Cut
Losses")

"'Make sure you don't get killed on the downside," he (Hersh Cohen,
chief investment officer of ClearBridge Advisors, a Legg Mason subsidiary) said.
... Mr. Cohen has managed the Legg Mason Partners Appreciation fund for 30
years, over which he has beaten the S.& P. 500.... Last year was 'the worst
in my career in 40 years of managing funds,' Mr. Cohen said. ... Mr. Cohen
focuses on companies with 'superior balance sheets'.... Mr. Cohen holds a
doctorate in psychology—a background he calls most helpful in 'market
extremes.' He says he tries 'to act on extremes — but to act the other
way,' cutting back when the market is euphoric, and increasing his bets when
others panic 'and stuff is being given away.'" (NYT, 7/26/09, "Up 40%,
but Still Feeling Down")

One might exit an investment --- at a profit or a loss --- if and when HAv2.3 indicates
unreasonably high valuations and/or developing financial stress and/or
mismanagement. "[M]ost people are
better attuned to buying than selling. It's especially hard to part with
stocks that have had a stellar performance. ... [T]he highest price-to-growth
(PEG) ratios, which are often indicators of over-valued stocks. A high PEG
suggests that the price is high relative to the expected earnings; a PEG over 4
is a warning sign. ... PEG ratios are hardly infallible guides to future
performance.... But they do provide an objective measure of valuation, rather
than relying on your gut feelings."(WSJ,
8/12/09 WSJ, "A Time to Let Go Of Overvalued Stock")

"If you want to bail out, you have to do so on the way up and not worry
about missing the peak." (WSJ, 8/26/09, "How I Got Burned by
Beanie Babies") Bernard Baruch noted, "I made my money by selling too
soon."

The ultimate use of Projection v2.3 is to forecast a high/low stock price
ranges, which is based,
in part, upon user specified Price/Earnings,
Price/Sales, Price/Cash Flow and/or Price/Book Value ratios and associated
weights. Historic ratios and weights are calculated in HAv2.3.

What if your analysis is wrong? "A mind is a terrible thing to
change.... [O]ur
own mind acts like a compulsive yes-man who echoes whatever you want to
believe. Psychologists call this
mental gremlin the 'confirmation bias.' ...[P]eople are twice as likely to seek
information that confirms what they already believe as they are to consider
evidence that would challenge those beliefs.Why is a mind-made-up so hard to penetrate? ...
So how can you counteract confirmation bias? Gary
Klein, a psychologist at Applied Research Associates, of Albuquerque,
N.M., recommends imagining that you have looked into a crystal ball and have seen
that your investment has gone bust. Next, come up with the most compelling
explanations you can find for the failure. This exercise ... can help you
realize that your beliefs mightn't
be as solid as you thought. Try estimating the odds that your analysis is wrong.
... This way, if the investment does go awry, you will be less likely to dig in
your analytical heels and desperately try to prove that you are still
right." (WSJ, 11/13/09, "How to Ignore the Yes-Man in Your Head")

"Famed economist Paul Samuelson once said: 'Investing should
be more like watching paint dry or watching grass grow. If you want excitement,
take $800 and go to Las Vegas.' That's not to say investing can't be
exciting; it's an amazing feeling to watch the positive effects on your
portfolio after an investment thesis comes to fruition. Mr.
Samuelson, however, had a point: If you think investing is like gambling, you're
doing it wrong. ... [Y]our investments should allow you to sleep
peacefully." (11/13/12, Motley Fool, "Beat
the market and sleep well with this stock")

"Five years ago, the global financial system was falling apart. … [Some]
saw the buying opportunity of a lifetime. …
Much attention has been lavished on the speculators who reaped huge paydays
betting against the subprime mortgages that stoked the financial crisis.
Doomsayers like the hedge fund manager John Paulson and the cast of characters
in 'The Big Short,' the Michael Lewis book, saw calamity coming, and their
contrarian bets delivered when the housing market collapsed. But
what about the big long? During the dark days of late 2008, while other
investors dumped their holdings or sat paralyzed on the sidelines, who decided
that it was time to put money on the line? Who bought low and then sold high? …
But a number of other, lower-profile financiers also made billions by obeying
one of Mr. (Warren E.) Buffett's favorite aphorisms: 'Be fearful when others are
greedy, and be greedy when others are fearful.' … Each of these
bottom-of-the-market wagers offers enduring investment lessons. …But during
the frenzied fall of 2008, the uncertainty was so great that most investors were
immobilized by fear. … If
they waited too long in such a tumultuous market, the opportunity could pass….
As the stock rose, [they] firm took profits by methodically selling its stake.
…Though [they] left several billion dollars on the table by
unloading shares as they traded higher, [they] defended the sales as prudent
risk management. …
Howard Marks's memos to his Oaktree clients have a cultlike following among the
professional-investing cognoscenti. … The dispatches — as well as a book,
'The Most Important Thing' — harp on recurring themes: the paramount
importance of price, the danger of hubris, the value of contrarianism, the
inevitability of cycles. …'Either this is the greatest buying opportunity of
my career or the world is going to end,' … 'And if it ends, our clients will
have much bigger problems on their hands.' …Clients grew anxious. Calls began
streaming in to check Oaktree’s performance. In October, Mr. Marks tapped out
another memo to assuage them. 'Our assets are declining in value like everything
else, but we're comfortable that we’re doing exactly what you hired us to do,'
he wrote. 'We’re grabbing at falling knives. The best bargains are always
found in frightening environments.' … For months, Oaktree continued to lose
money. Mr. Marks tried to reassure his clients, saying it was inevitable that
they would be buying on the way down, that even the most experienced investors
couldn’t pinpoint when the market would stop dropping. Looking back, … if
had he waited until March 2009, the eventual market nadir, Oaktree would not
have been able to invest as much as it did. By then, all of the hysterical
selling had run its course, and there were fewer bonds to buy. …
Mr. Marks has also contemplated a new book. His theme? How to identify market
cycles and the pendulum swings of investor psychology. Today,
he sees the markets as neither dangerously expensive nor extraordinarily cheap.
He sees some signs of excessive risk-taking, but also sees continued
uncertainty. As a result of the muddy outlook, Oaktree is investing with
caution. For Mr. Marks, it's easier to know what to do at the extremes than it
is in the middle. 'Moments like 2008 will continue to present great
opportunities for as long as emotion rules the markets,' Mr. Marks said. 'In
other words, forever.' (11/9/13,
NYT, "Treasure Hunters of the Financial Crisis
")

"Twitter’s red-hot stock offering last week makes clear that, as in the
first Internet bubble, investors will pay up for a company even if it hasn't
turned a profit. And managers of companies that have generated only losses, like
Twitter — and even those that are profitable — are happy to suggest metrics
that they think are better suited for assessing their operations. Managements'
recommended measures, typically not found in generally accepted accounting
principles, have an uncanny way of burnishing a company’s results. They do so
by eliminating some pesky costs of doing business. As such, these benchmarks are
also known as earnings without the bad stuff. They were central to the
valuations that propelled Internet stocks skyward in the late 1990s. Then, the
higher the market climbed, the kookier the metrics became. … What costs do
companies want investors to remove from the income statement? Among the most
popular are those associated with stock-based compensation, like options and
restricted stock. Because these forms of pay aren’t made in cash, the theory
goes, they should be backed out of a company’s expenses. … But the idea that
these items don’t cost the company is nonsense, says Jack T. Ciesielski, an
accounting expert at R.G. Associates in Baltimore and publisher of The
Analyst’s Accounting Observer. … Ditto for the intangibles, he said. 'When
they acquired a company, they spent money for things like in-process research
and development, contracts and customer lists,' he added. 'To back out those
intangibles is bogus.' … To plumb the popularity and pervasiveness of such
metrics, Mr. Ciesielski and his associates analyzed filings from technology and
health care companies in the Standard & Poor’s 500-stock index. … Of the
69 technology companies in the index, he found that 56 used non-GAAP earnings
presentations; of the 54 health care companies, 45 used them. … But Mr.
Ciesielski said companies' creativity in accounting metrics was on the way to
becoming ridiculous." (11/9/13, NYT,
"Earnings, Without the Bad Stuff")

"J.C. Penney has been a train wreck whose comeback always seems just around
the next earnings corner, but people are beginning to doubt...." (1/10/13,
MotleyFool) HAv2.3
Analysis saw problems with JCP several years ago.

Herbalife Ltd. has been in the news due to the battle between Bill Ackman of
Pershing Square Capital Management, L.P. and Carl Icahn. HAv2.3
Analysis revealed some interesting points of concern.

"The chairman of one of India's largest information technology
companies admitted he concocted key financial results including a fictitious
cash balance of more than $1 billion, a revelation that sent shock waves across
corporate India and is likely to prompt investors to question the validity of
corporate results as the once-hot economy slows. B. Ramalinga Raju, founder and
chairman of Satyam Computer Services Ltd.
-- "satyam" means truth in Sanskrit -- said in a letter of resignation
that he also overstated profits for the past several years, overstated the
amount of debt owed to the company and understated its liabilities. Eventually,
he said, the scheme reached 'simply unmanageable proportions' and he was left in
a position 'like riding a tiger, not knowing how to get off without being
eaten.'The news prompted concerns
about corporate governance and accounting standards across Indian industry,
especially since Satyam was audited by PricewaterhouseCoopers
and had high-profile independent directors, including a Harvard
Business
School
professor, on its board until recently. ... Immediate comparisons were drawn to
the watershed in U.S.
corporate accounting and governance standards that stemmed from the Enron
crisis. ... In New York, the company's American depositary receipts were suspended from trading
Wednesday. ... Satyam ... chairman resigned after admitting to inflating revenue
and profit figures over several years. ... The corporation grew into
India
's fourth-largest technology company by sales, employing 53,000.... It counts
among its clients global giants such as Nestlé SA, General Electric Co.,
Caterpillar Inc., Sony Corp. and Nissan Motor Corp. ... In his five-page
confessional letter to Satyam's board, Mr. Raju said that initially the gap
between the company's actual operating profit and the one reflected in the books
had been marginal. But as Satyam grew in size and its costs increased, so did
the size of the gap. Mr. Raju fretted that if the company was seen to perform
poorly, it could prompt a takeover attempt that would expose the gap, so he
concocted ways to plug it. Among them: pledging the shares he and other company
backers owned to raise a total of $250 million in funds for Satyam in the past
two years. He said the loans, which weren't reported on Satyam's balance sheet,
were based on 'all kinds of assurances' and were designed to allow Satyam's
operations to continue. ... But the ruse became increasingly difficult to
maintain as the company's fortunes dwindled. ... . Among the directors at the
time were Krishna Palepu, professor
at Harvard
Business
School
.... resigned late last month. ... The lenders who had lent money to Mr. Raju to
keep the company running began to sell the pledged shares to meet margin calls,
or the forced selling of shares to cover losses. ... Mr. Raju's letter doesn't
spell out why exactly that ended his efforts to maintain the façade but it may
have deprived him of the funds needed to keep the company going." (WSJ,
1/9/09,"Fraud Rocks Satyam as Chairman Resigns Overstated Profits Raise
Investor Concern About India
Oversight")Business
Analysis & Valuation --- Using Financial Statements by Krishna G. Palepu,
PhD, Thomas D. Casserly, Jr. Professor of Business Administration, Harvard
University, has long been on our list of Recommended Readings.

"PricewaterhouseCoopers,
which signed off on Satyam Computer
Services Ltd.'s finances for several years without detecting the fraud by
Satyam's founder and chairman, defended its procedures on Thursday. ... Satyam
Chairman B. Ramalinga Raju said Wednesday that he had created a fictitious cash
balance of more than $1 billion and inflated accrued interest, profits and debts
owed to the company. ... Among the bookkeeping problems, Mr. Raju said the
company stated the amount owed to it by debtors as $545.65 million, compared
with an actual position of $444.81 million.As part of an end-of-year audit, accountants would have had to verify the
amount of money owed to the client.... Also in his letter, Mr. Raju said the
company's cash and bank balance had been inflated by more than $1 billion
dollars. ... Normally, checking bank statements wouldn't be considered
sufficient under Indian or U.S. rules -- the auditor would also need to get direct confirmation from the bank. For
investors who relied on Satyam's financial statements, the fraud would have been
difficult or impossible to discover. 'When a fraud goes so far as to
misreport cash, finding warning signs of the fraud becomes quite problematic,'
said Charles Mulford, an accounting professor at the Georgia Institute of
Technology. There were some red flags though. One indication of fraud
accountants often look for is a discrepancy between net income and operating
cash flow, the amount of cash a company spits out from its operations. ...
Another
warning sign was a sharp increase in assets held in the company's bank
deposits." (WSJ, 1/9/09, "Pricewaterhouse Defends Its Audit
Procedures") Books authored by Professor Charles Mulford have long
been on our list of Recommended Readings.

"I think the observation about accounting fraud being a priority [at the
SEC] is a fair one. Co-director Ceresney recently gave an entire speech devoted
to financial reporting and accounting fraud, where he highlighted the SEC's
Financial Reporting and Audit Task Force, which they call the Fraud Task Force.
It has 12 lawyers and accountants, who are using analytical tools to identify companies that are likely to have revenue recognition and other accounting
issues." (January 2014, California Lawyer, 2014 Roundtable
Series-Securities) Revenue recognition is one area of potential fraud. One might
use a Freedom of Information Act request to the SEC to acquire information
concerning potential short-sale candidates.

We have produced various HAv2.3 analyses that timely revealed financial statement
distress, e.g., Enron, Satyam,
Twitter, J.C.
Penney. Using HAv2.3, a stock investor could have avoided costly errors, or,
a very aggressive investor could have initiated a short position.

"Finance
Sharing Is for Chumps. Financial experts argue for a great variety of investment
strategies, but these approaches all have one thing in common: Once the word is
out about them, their returns shrink. That's the finding of a couple of finance
professors who looked at 82 market strategies—differences in valuations that
gave investors a chance to profit and were then described in academic papers. In
a working paper, the authors estimate that the average return decays after
publication by about 35%. This seems to happen mostly because investors learn
about the strategy from the academic papers and trade on it, thereby diminishing
the advantage (in keeping with the way markets are supposed to work). The effect
is most pronounced, the professors write, with strategies focusing on stocks
with large market capitalization, high-dollar-volume trading and dividends. Does
Academic Research Destroy Stock Return Predictability?' R. David McLean and
Jeffrey Pontiff, Social Science Research Network (October)" (11/9/12, WSJ,
"Week
in Ideas")

The information presented on this website was obtained from sources
believed to be reliable, but its accuracy and completeness and any opinions
based thereon cannot be guaranteed. It is presented for general interest
and educational purposes. It should not be construed to
be: (a) advice concerning the valuation; (b) recommendation of the purchase, retention or sale;
or, (c) analysis of the securities of any
company.Those
seeking such advice should consult with their advisors. The opinions,
findings and/or conclusions of the authors expressed herein are not necessarily politically-correct
and are subject to change without notice. Past results should not be interpreted as a
guaranty of future performance.

FINANCIAL STATEMENT ANALYSIS

For more information and/or to make comments or
suggestions, please communicate with us at: